Bitcoin L2 Bitlayer launched BitVM Bridge, a cross-chain bridge, using "minimal trust technology" to release BTCFi megabytes of US dollar liquidity

Bitcoin Layer2 protocol Bitlayer recently announced a strategic cooperation with 5 major blockchain networks to jointly promote the BitVM Bridge cross-chain bridge, hoping to release the huge liquidity of the Bitcoin ecosystem. This article explains in detail what BitVM Bridge is and what is its potential? (Synopsis: Bitcoin L2 Bitlayer Reaches Strategic Cooperation with Base, Starknet, Arbitrum, Sonic, Plume Network) (Background supplement: Bitlayer completes Series A+ financing led by Polychain Capital, raising a total of $25 million) Looking back at the beginning of 2024, by the inscription (Ordinals), The explosion of the Bitcoin ecosystem led by Runes once caused a large influx of users to cause congestion on the Bitcoin mainnet many times, and while restarting discussions on the use of the Bitcoin ecosystem, many teams saw a new construction direction "Bitcoin Layer 2". Since the Bitcoin network does not natively support smart contracts, in order to further accelerate Bitcoin's entry into common DeFi ecological applications such as DeFi, GameFi and NFT, Bitlayer, the Bitcoin Layer2 protocol, recently announced the launch of strategic cooperation with Base, Starknet, Sonic and Plume Network five blockchains to jointly promote the BitVM Bridge cross-chain bridge and jointly release the huge liquidity of BTCFi. What is BitVM Bridge? According to official documents, the cross-chain bridge BitVM Bridge is built by the Bitlayer team based on a combination of BitVM smart contracts, fraud proof (Fraud Proofs), zero-knowledge proofs (ZK Proofs) and other frameworks, which will support multiple ecological environments. The main function of the protocol is to bridge BTC into Peg-BTC, which is convenient to cross chains from the mainnet to other blockchains. Initially, BitVM Bridge supports interaction with Bitlayer Rollup and Ethereum and will gradually expand to other EVM-compatible chains (such as the strategic partnerships mentioned above) and even non-EVM ecosystems (e.g., Solana). BitVM Bridge Process Diagram Why mint Peg-BTC? Some readers who are not familiar with DeFi may not understand, why mint BTC to Peg-BTC? That's because the native token of the Bitcoin network cannot be used directly on another chain (e.g. Ethereum, Solana), so it is necessary to "lock the mainnet BTC" through cross-chain bridges and "release the equivalent BTC" on other blockchains to allow users to participate in other chains' rich DeFi protocols. Peg-BTC minted through BitVM Bridge will remain 1:1 anchored to BTC, and its programmable features enable users to flexibly participate in DeFi operations in various ecosystems and expand more financial application scenarios. For example, after users cross chains, they can stake and lend Peg-BTC on Bitlayer for a series of DeFi operations. How does BitVM Bridge significantly reduce trust risks across chain bridges? However, in the Bitcoin mainnet that advocates decentralization, most BTC cross-chain bridge bridging technologies still rely on the "trust assumption", that is, these cross-chain funds are controlled by "single" or "majority" entities, and these models also introduce additional trust risks for BTC assets in the cross-chain process, which is the main reason why some Bitcoin holders are worried about using cross-chain bridges. In this regard, the following will use the evolution of three generations of BTC bridging technology to further explain how BitVM Bridge reduces the trust risk of cross-chain bridges: The first generation of BTC bridging technology relies on a centralized custody model, where bridging funds are locked in an address controlled by a single entity, such as wBTC. In addition, the BTC bridging scheme based on multi-party computation (MPC) needs to control funds through a predetermined group distribution. While these models have some usefulness, there are risks of centralization. The first generation of BTC bridging mode The second generation of bridging technology is to introduce a "distributed custody mechanism" to try to solve the above problems, through random selection of multiple entities to manage together, and with incentives and forfeiture mechanisms, to reduce the risk of collusion. However, even with the improvements in distributed hosting, bridging technology still relies on the assumption of "majority honesty" and does not completely eliminate the ability to rely on trust. Second-generation BTC bridging model The third-generation bridging technology, represented by BitVM Bridge, greatly reduces the trust assumption through "smart contract escrow" that minimizes trust. In this model, funds are locked in addresses controlled by BitVM smart contracts, and the system operates on the assumption that at least one participant is honest, and this "1-of-N" trust design significantly reduces the requirement of trust assumptions and makes the cross-chain system more robust. As for the fourth generation of bridging technology, it is still a theoretical concept, and it is expected that the implementation will make "trustless" smart contracts possible. Fourth-generation bridging technology Three major processes to build the BitVM Bridge operation framework In addition, explain the term: when using BitVM Bridge to perform cross-chain operations, the three major processes of Peg-in, Peg-out and Reclaim will be used to build a complete operation framework. Peg-in, Peg-out are responsible for providing users with cross-chain exchange of BTC and Peg-BTC, and there is also a broker (middleman) to provide short-term liquidity for prepaying funds exchange requests made by Peg-out. The Reclaim process uses optimistic assumptions (assuming that the broker is honest) and allows the broker to recover the BTC it prepaid in the peg-out operation. However, the challenge mechanism for fraud proof can be triggered in times of dispute (7-day challenge period). Is there any benefit to participating in the testnet using Peg-BTC? At present, the BitVM Bridge testnet is live, and users can log in to the testnet to experience features such as Mint, UnMint, and Reclaim. Will there be additional airdrop benefits from using Peg-BTC in testnet operations? Judging from the current announcements and documents, the official does not explicitly mention it. However, users can participate in a number of ecological airdrops held by Bitlayer's mainnet, and complete tasks to get corresponding BTR token rewards. Although the Bitlayer native token BTR is not yet live, how much of the value of these token points is still unknown? However, if it is a user who already has bitcoin spot, you can consider whether to release more value. What protocols does Bitlayer have? Let's take a look at Bitlayer's leading protocols: Re-staking agreement Desyn Protocol (TVL $285 million) Lending Agreement Avalon Finance, TVL $278 million...